Updated 8-21-97

full story Sealing The Deal

The Spending Side

The Tax Side


The Balanced Budget Amendment


Key Terms

Appendix: Clinton's Feb. 6 Budget

Related Stories

The Budget Deal: A Conspiracy Of Celebration Yep, Congress and Clinton finally balanced the budget. But in their haste to hand out goodies, they missed a chance to defuse some time bombs. By Nancy Gibbs/TIME, 8/11/97

The Tax Bill: Money In Motion Why some of the "wealthy" have nothing to gain. By Daniel Kadlec/TIME, 8/11/97.

Related Sites

The Office Of Management and Budget

The Congressional Budget Office Gopher

The National Debt Clock Counterpoint

Did Congress Approve Tax Measures Favoring The Well-Off? Iris J. Lav, associate director of the Center on Budget and Policy Priorities believes so, while J.D. Foster, executive director and chief economist for the Tax Foundation says the big winners are middle-class families.

Does The Budget Deal Address The Long-Term Entitlement Spending Crisis? -- John Tottie, Senior Economist with Citizens for a Sound Economy says the deal only worsens entitlement spending, while Brookings Institution Visiting Fellow Joseph White argues policymakers can't plan now for problems that are still 30 years off.

Is A Balanced Budget Amendment A Good Idea? Heritage Foundation senior fellow Daniel Mitchell takes on Robert Greenstein, executive director of the Center on Budget and Policy Priorities.



Balancing The Budget

Sealing The Deal

"We have put America's fiscal house in order again."
-- President Bill Clinton, Aug. 1, 1997

So spoke the president after over two years of negotiations, public acrimony, and a campaign season that saw Medicare become a political whipping boy extraordinaire. Maybe all that was required before Clinton, on Aug. 5, could finally put his signature on a bill to reign in deficits by $900 billion and balance the federal budget by 2002.

The White House agreed to that goal back in 1995 after Republicans seized control of Congress, and the president began his march to the political center. The GOP early on pushed for $270 billion in Medicare savings, along with over $200 billion in tax cuts. They didn't get that in the end, but did pass a long-sought reduction in the capital gains tax rate, estate tax relief and child tax credits that amounted to the biggest tax cut since 1981.

"This was a long time coming," House Speaker Newt Gingrich said at the Aug. 5 signing ceremony, in what may have been the one understatement of the day.

For his part, Clinton got $35 billion in education spending (a major campaign theme), a major chunk of funding for children's health insurance, and a restoration of welfare benefits for legal immigrants (another campaign promise).

Saying the pact fulfilled the "responsibility of a generation," Clinton, with an eye to the history books, said, "I am particularly pleased that the first balanced budget in a generation is also the best education budget in a generation ... the largest investment in higher education since the G.I. Bill 50 years ago," he said.

Republicans claimed the final outcome grew out of their 1994 manifesto, the Contract With America.

"Clearly it was a negotiation that centered around our model, of balancing the budget, and cutting taxes, and saving Medicare," said House Majority Leader Dick Armey (R-Texas). "The president's team worked hard. They fit some of their details into our model but in the end it is, in fact, a bill that is reflective of a direction we set with the Contract With America."

The key provisions, on both the tax and spending sides:

  • $115 billion in Medicare savings, mainly through lower payments to hospitals and doctors.
  • $13 billion in Medicaid savings.
  • $24 billion in new spending to increase health care coverage for impoverished children.
  • $12 billion in restored welfare aid to legal immigrants.
  • $400-per-child tax credit covering children 16 and younger, increasing to $500 in 1999.
  • $35 billion in higher education credits.
  • The exemption from taxes on an estate raised from $600,000 to $1 million.
  • Top capital gains tax rate lowered from 28 percent to 20 percent (retroactive to May 7, 1997), and the first $500,000 from the sale of a home exempted from capital gains tax.

Is it good for America, and will it work?

Not all were singing the budget agreement's praises. Though the tax and budget provisions, which were considered in separate bills, sailed through both the Senate and House, pockets of opposition came from the outer reaches of each party. House Minority Leader Dick Gephardt spoke for liberal Democrats, complaining the deal's tax provisions were tilted toward the wealthy, while in the Senate, Phil Gramm of Texas spoke for conservatives who felt the tax cuts were paltry and the new spending excessive.

"We in the Democratic Party feel strongly that the people in the middle, the people stuck on the bottom, are the people we need to be giving the majority of this tax cut," said Gephardt of Missouri.

Said Gramm, "My unhappiness is we were unwilling to cut spending which would have allowed us to have real tax cut that would have affected more Americans."

Moreover, some are questioning whether the legislation will actually end federal red ink by 2002 or any date. Some analysts noted lawmakers relied heavily on assumptions the economy will stay strong, passing new spending with tax cuts, while putting off tough spending cuts -- and decisions about what to cut -- until the so-called "out years" of 2001-2002.

"When you see as much bipartisan euphoria as you do, it must show that there isn't a lot of bloodshed," former Congressional Budget Office director Robert Reischauer told The Wall Street Journal.

Proponents of tax simplification, like former GOP presidential hopeful and flat tax champion Steve Forbes, complained that the cut was paltry but would still complicate the tax code.


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